LONDON (Reuters) - Business Secretary Vince Cable warned British banks yesterday they could face a tax on profits if they pay too much in dividends and bonuses at the expense of lending to smaller businesses.

Cable said that getting money flowing to private sector companies was vital as Britain tried to curb a record peacetime budget deficit while sustaining economic recovery.

Launching a public consultation on the issue, Cable said that taxation, previously mentioned by finance minister George Osborne, might be one stick used to beat banks into lending.

"There is the possibility also, which the chancellor has floated and I mentioned again this morning, of a tax on gross profits should the banks seem to be giving priority to paying out dividends or bonuses," Cable told BBC Radio 4.

Osborne has already announced plans for a separate levy on bank balance sheets to raise an annual £2 billion ($3.1 billion).

Cable, a Liberal Democrat in the Conservative-led coalition government, said the premiums earned on bank lending to small businesses were too high.

A lobby group representing business said some of its members had been priced out of borrowing from the main lenders.

"Viable businesses have struggled getting access to fairly priced credit as banks impose punitive interest rates and conditions," said John Walker, chairman of the Federation of Small Businesses.

"This has also meant that some businesses have not gone to the banks at all, instead using savings, or going to family and friends," he added.

Banks have attached more stringent rules to loans as they seek to cushion themselves against future shocks following the global credit crisis.

The British Bankers Association said its lending stands at 720 billion pounds to all businesses in this country, but that it was in no one's interests to offer loans to customers who will struggle to repay a loan.

"The greatest help there can be for business is to restart the securitisation market and get wholesale markets moving so there is a steady stream of new funds which banks can convert into loans to business," said Angela Knight, BBA chief executive.

Cable cited the Bank of England's recent Financial Stability Report (FSR) which said there was scope for banks to build capital while sustaining lending to the real economy.

"The FSR estimates that if UK banks limited bonus and dividend payouts to pre-crisis and 2009 levels respectively, the major banks could generate around 10 billion pounds of additional capital over 2010, which could in turn sustain £50 billion in new lending," said the consultation document, co-authored by Cable's department and the Treasury.

Other possible measures to promote lending include the development of smaller regional stock exchanges and a national loan guarantee scheme. Businesses have until Sept. 20 to reply to the consultation.

In a separate announcement, Britain fleshed out its plans for sweeping reform of financial supervision, starting with a new macroprudential watchdog in the autumn.